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Hedge Funds Are Getting Destroyed

While today’s cash market session started off confused, with the Dow crossing the unchanged line numerous times before the selloff once again accelerating, it follows a furious plunge yesterday which was driven by momentum stocks, and as noted yesterday, the MSCI USA Momentum ETF (MTUM) suffered it worst performance day ever on Wednesday.

The problem, as we discussed over the summer especially in the aftermath of the Facebook Q2 earnings fiasco, is that many of these momentum names are also among the most widely held hedge fund stocks. And while we already knew that hedge funds have had a bad year, as demonstrated by the fresh 1 year low print in the declining HFR equity hedge fund index…

… with the latest liquidation of momentum stocks, the recent market move has been absolutely brutal for hedge funds.

One place to watch the carnage first hand is the Goldman Sachs Hedge Industry VIP ETF, or GVIP, which was created to replicate exposure to stocks which are the most widely held by hedge funds long portfolios: this ETF has tumbled >7% from its recent just two weeks ago and has fallen 12 of the last 14 trading sessions. The current drop is now of similar magnitude to both the February VIX explosion and the March tech collapse.